6. Consider an industry with three firms. Firm 1's marginal cost of abatement (MCA)=10-E₁, where E is the tons of pollution emitted. Firm 2's MCA-30-2E₂. Firm 3's MCA=30-E3. Please draw a diagram to support your answers to the following questions. a. If there is no policy to reduce pollution, how much pollution will be emitted by each firm? What will be total pollution? Hint: if there is no policy to reduce pollution, the price to pollute is zero. b. If the government imposes a tax of $10/ton, how much pollution will be emitted by each firm? How much pollution will be emitted in total? c. What will be the total cost of abatement? d. If the government imposes a limit on pollution, where the limit is the total amount of pollution you found in part b, and each firm is allowed to pollute an equal amount (i.e., each firm will be allowed to emit one third of the total amount allowed), what will be the total cost of abatement? Which policy is more efficient, the tax or the limit on pollution? Explain. e.

6. Consider an industry with three firms. Firm 1's marginal cost of abatement (MCA)=10-E₁, where E is the tons of pollution emitted. Firm 2's MCA-30-2E₂. Firm 3's MCA=30-E3. Please draw a diagram to support your answers to the following questions. a. If there is no policy to reduce pollution, how much pollution will be emitted by each firm? What will be total pollution? Hint: if there is no policy to reduce pollution, the price to pollute is zero. b. If the government imposes a tax of $10/ton, how much pollution will be emitted by each firm? How much pollution will be emitted in total? c. What will be the total cost of abatement? d. If the government imposes a limit on pollution, where the limit is the total amount of pollution you found in part b, and each firm is allowed to pollute an equal amount (i.e., each firm will be allowed to emit one third of the total amount allowed), what will be the total cost of abatement? Which policy is more efficient, the tax or the limit on pollution? Explain. e.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 10PA

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There are three industrial firms in a town Firm Initial Pollution Level Cost of Reducing Pollution by 1 Unit A 30 units $20 40 units 20 units B с $30 $10 The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits. 1. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation? 2. How much higher would the costs of pollution reduction be if the permits could not be traded?
Scenario 2. Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. Refer to Scenario 2. What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other? if firms are not allowed to buy and sell pollution permits from each other?
The table below shows the marginal cost for three firms to clean up units of pollution. Marginal Cost ($) to clean... Firm 1 ton of pollution 2 tons of pollution 3 tons of pollution US Steel 155 580 860 Ford 220 865 1280 Apple 1200 1600 1915 Suppose the government gives every firm enough permits so that, without trade, every firm must clean two units of pollution. What. will the cost be to every firm, and the cost to clean 6 units of pollution? The market price for a permit is $1400. Net Cost for US Steel = $ Net Cost for Ford = $ Net Cost for Apple = $ Societal cost to clean = $ F12
17. Two firms, A and B, each currently dump 50 tonnes of chemicals into the local river. From now on both firms will require a pollution permit for each tonne of pollution dumped. The government gives each firm 20 tonnes' worth of pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, what would we expect that Firm A and Firm B will dump? a Firm A will dump 10 fewer tonnes of pollution into the river, and Firm B will dump 50 fewer tonnes of pollution into the tiver. b. Firm A will dump 50 fewer tonnes of pollution into the iver, and Firm B will dump 10 fewer tonnes of pollution into the river. c. Firm A will dump 50 fewer tonnes of pollution into the river, and Firm B will dump 10 more tonnes of pollution into…
wo firms, A and B, each currently dump 50 tonnes of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each tonne of pollution dumped into the river. It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if the firms are NOT allowed to buy and sell pollution permits from each other, and what is the total cost of reducing pollution if the firms ARE allowed to buy and sell permits from each other? A. $4500; $2500 B. $3000; $1500 C. $4500; $3500 D. $4500; $4000
firms matter for efficiency? Explain. 9. There are three industrial firms in Happy Valley. Initial Pollution Cost of Reducing Firm Level Pollution by 1 Unit A 30 units $20 В 40 units $30 C 20 units $10 The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits. a. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation? b. How much higher would the costs of pollution reduction be if the permits could not be traded? Answers
Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. Marginal Cost to Eliminate Firm (Dollars) First Unit Second Unit Third Unit Fourth Unit 54 67 82 107 57 68 86 108 54 66 82 107 D 62 73 91 111 Refer to Table 10-5. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits? S69 wered $85 swer $79 $87 ABC
There are three industrial firms in Kitona. The Government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits. Firm Initial Pollution Level Cost reducing pollution by 1 unit A 70 Units $20 B 80 Units $25 C 50 Units $10 Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation? How much higher would the cost of pollution reduction be if the permits could not be traded?
Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. Marginal Cost to Eliminate Firm (Dollars) First Unit Second Unit Third Unit Fourth Unit 54 67 82 107 57 68 86 108 54 66 82 107 D 62 73 91 11 Refer to Table 10-5. If the government wanted to eliminate exactly 7 units of pollution, which of the following fees per unit of pollution would achieve that goal? S85 $87 er $71 $74 AB
8. Assume there are two firms in an industry that generate a nasty pollutant. The government wants to limit the nasty pollutant by implementing either an environmental standard or an emissions tax. Using the graph below, answer the following questions: a. How many tons of pollutant are emitted in the absence of government intervention? b. How many tons of pollutant are emitted when the government sets an environmental standard of 4 tons per firm? c. How many tons of pollutant are emitted when the government charges a tax of $250/ton? d. What is the loss in "consumer surplus" (to firms) under the environmental standard? e. What is the loss in "consumer surplus" (to firms) under the tax? f. What is government revenue under the environmental standard? g. What is government revenue under the tax? Marginal benefit 500 400 300 200 100 Environmental standard Firm A Firm B environmental standard = 4 tons/firm 4 5 Marginal benefit 500 10 Tons emissions 400 300 200 100 Emissions tax 2.5 Firm A…
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27. Esther and Karin each own a polluting plant. Esther's plant has a marginal treatment cost = 5T ($5 for the 1st ton, 5(2)=$10 for the 2nd ton ...) and Karen's plant = 8T ($8 for the 1st ton, 8(2)=$16 for the 2nd ton .). Suppose that the government plans to levy pollution emission fees to reduce the total pollution by 20 tons. How much pollution emission fees ($) will need to be collected to meet the government's target? In the range of a. 50 to 59 b. 60 to 69 C. 70 to 79 d. 80 to 89